IRS Substantiation Rules Apply to Private Foundations, Too!

Many readers likely have some familiarity with the IRS rules for substantiation of charitable contributions, which set out requirements for taking a deduction for certain gifts. These rules are typically discussed in the context of public charities, which generally conduct a large amount of fundraising from the general public and receive numerous gifts of different sizes and varieties.

However, it is important to note that the rules apply equally to donors making contributions to private foundations—and the stakes can be particularly high for such donors, who often will be making large gifts to fund their family foundations. If a private foundation does not provide the donor with a substantiation receipt that meets IRS requirements—which vary according to the amount of the contribution, and whether it is a donation of cash or property—the donor could very well have his or her deduction denied.

Substantiation Requirements

For contributions of $250 or more (cash or property), a taxpayer will need to substantiate a contribution with a contemporaneous written acknowledgment by the recipient organization that includes the following:

  • the amount of cash received and a description (but not a valuation) of any non-cash property received;
  • whether the organization provided any goods or services in exchange for the cash or property received; and
  • a description and good faith estimate of any goods and services provided by the organization for the cash and property received.

The contemporaneous requirement means that the donor must receive the acknowledgement before the earlier of:

  • the date on which the donor files a tax return for the year in which the contribution is made, or
  • the due date (including extensions) for such tax return.

To illustrate, in the 2012 case Durden v. Commissioner (TC Memo 2012-40), the Tax Court upheld the denial by the IRS of a $25,000 charitable deduction where the charitable organization failed to include within its receipt an affirmative statement that no goods or services were provided in exchange for the donors’ cash contribution of cash. The charitable organization tried to remedy this defect by providing a second receipt, but that one was not provided contemporaneously and so could not suffice to substantiate the contribution.

Cash donations of less than $250 do not carry the same contemporaneous requirement, though donors still will need some sort of substantiation in order to deduct their contribution. A bank record (e.g., a cancelled check) or a written receipt from the donee will suffice,  though a donor cannot substantiate through other written records, such as a personal logbook.

For donations of property of less than $250, a donor should retain a receipt from the organization with its name, the date and location of the contribution, and a description of the property that is reasonable under the circumstances—though if a contribution is made under circumstances where getting a receipt would not be practical (such as at a dropoff location, or for a pickup at the donor’s residence when he or she isn’t home), the donor can instead retain written records to establish the contribution. For property donations in excess of $500, a donor needs to retain records showing how the property was obtained, as well as the donor’s basis in the property. In order to take a deduction for property with a claimed value of over $5,000, it is necessary to obtain a qualified appraisal. See IRS Publication 1771 for more information about charitable contributions and substantiation requirements.

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